SPP President Sophia Singleton, said: “The SPP very much supports the Government’s desire for British institutions to back British businesses – wherever it is in the interests of savers to do so and without underestimating the practical challenges – and we very much look forward to continuing our engagement with policymakers to make these proposals a success. SPP expressed its concerns about proposals for a minimum level of £50bn AUM, suggesting something much smaller, so we are pleased that industry concerns have been acknowledged and this proposal has been halved to £25bn. Likewise, we suggested a glide path for those who were not yet at the required threshold and so are pleased to see that government has today confirmed that schemes worth over £10 billion that are unable to reach the minimum size requirement by the end of the decade will be allowed to continue operating, providing they demonstrate a plan to reach £25 billion by 2035. We also welcome the exemption for CDC schemes that SPP and others had called for. As we made clear in our consultation response and thought leadership paper on these issues, it’s important that the authorisation criteria for new entrants are not too restrictive and that innovation and competition are not stifled.”
Paul Heaney, associate partner at Aon, said: “This is a very significant announcement which enables extra flexibility for schemes and sponsors to distribute surplus without needing to wind-up. This has the potential to create significant value for UK sponsors of DB sponsors who have often contributed significant amounts to schemes now in surplus. This in turn is likely to have knock-on benefits for the UK economy and tax take. We are also likely to see many schemes looking again at their endgame decisions and, in some cases, reviewing previous decisions if they are not committed to a particular approach. However, an opportunity has been missed to allow surplus refunds to members via one-off payments. This leaves discretionary benefits needing to be made via pensions. That leaves corporates with a long-term commitment and members who are short-lived, missing out on the full value of the discretion.”
Kathryn Fleming, Head of DC Consulting, Hymans Robertson says: “We welcome today’s consultation response, ‘Unlocking the UK pensions market for growth’, and are pleased to see a package of proposals for change, projecting 10-15 DC Megafunds by 2030, and an improvement in member outcomes in the region of 3%. We fully support the drive for scale and the benefits that setting a minimum size of assets under management, at £25billion, can bring. However, the implementation of such an approach will take time, which the government recognises, and we remain concerned about the potential for this to reduce innovation at a time when it is needed most. Collective Defined Contribution (CDC), a relatively new and exciting area for the defined contribution market is supported in the consultation response, and creating a minimum size exception seems practical and sensible. Given how new this is to the market, the need to grow the multi-employer CDC market and ensure confidence and trust in CDC, is a valid starting point for the government to take. Turning to employer duty, it is understandable that the government has opted away from yet more regulation – and associated costs to employers – at this stage when many are facing an array of changes. There remains a risk that members who are currently in ‘average’ schemes will miss out on opportunities for better value and ways to further increase their pension pot. It feels absurd that the regulatory regime for advising one individual on their pension is stricter than advising an employer on the provider for their entire workforce – and something that goes against everything the industry is doing to ensure better retirement living standards for the majority of members. It is disappointing that the pensions industry is still waiting for a confirmed date of when the Pension Schemes Bill will go live. We would have liked to have seen this released in tandem to today’s update to provide an overarching theme and better understanding of the government’s desire for the future of pensions – helping to clarify and provide comfort for the pensions industry, today’s pensioners and those on the cusp of retiring.”
Tom Froggett, Senior Consultant, XPS Group said: We welcome the principle of giving well-funded DB schemes more flexibility to build and use surplus where it is safe to do so, and are pleased to see Government’s intention to provide clear legislative principles for surplus release and supporting regulatory guidance around this. The focus now turns to getting the details right. We need a clear blueprint for trustees and employers who are seriously considering running on, so that they can develop with confidence the strategic and operational frameworks to deliver the benefits of running on to members and employers as well as having robust safeguards to protect member benefits. We are already seeing well-designed run-on strategies introduce a number of the disciplines used by other financial institutions such as insurers, providing both safety and upside for members.”
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